SKG Capital Markets Day 2013 Closing Remarks
Ian Curley, Group CFO
SKG | Positioned to deliver performance and growth
SKG has fundamentally improved its positioning over the last 12 months
Acquisition of Orange County Container Group (OCCG) for US$340 million in November 2012
Complete exit of private equity ownership in January 2013
Bond issues of approximately 1.1 billion at improved rates of 4.125% to 5.125%
Transfer to unsecured capital structure through re-financing of our 1.375 billion SCF*
Operations have benefitted from Capex of 1.9bn and Cost Take-out of 542m since 2007
The integrated model consistently sustains above packaging sector average margins
Strong Free Cash Flow generation will drive value through returns focused allocation of capital
* (SCF - Senior Credit Facility)
Market reaction to SKGs last 12 months
5.00
6.00
7.00
8.00
9.00
10.00
11.00
12.00
13.00
14.00
15.00
16.00
01-Aug-12 01-Sep-12 01-Oct-12 01-Nov-12 01-Dec-12 01-Jan-13 01-Feb-13 01-Mar-13 01-Apr-13 01-May-13 01-Jun-13 01-Jul-13 01-Aug-13 01-Sep-13
SK Feeder placing 10m
MDP placing 17.5m OCCG acquisition process
SK Feeder final placing
7.4m
Bond issue 400m
Two bond offerings 750m
Q113 results & SKOC update
Q213 results & SCF
re-financing
Exit of private equity | The changing face of SKG ownership
14%
22%
30%
34%
53%
40%
32%
24%
31%
47% 46% 46% 46%
35%
0%
IPO Dec-07 Dec-10 Feb-11 Jul-13
Top 20 public shareholders Other public shareholders Private equity
Active capital structure management | Bonds & SCF re-financing
Four bond issues totalling 1.1 billion since September
Successfully completed an up-sized 1.375 billion SCF re-financing in July 2013
Additional 5 year AR securitisation programme of 175m at a margin of 1.70%
Transitioned from leverage secured to unsecured corporate profile
Year-on-year cash interest savings of approx.
30m per annum
Debt maturity profile extended to 5.6 years
Lowering cost of capital and EPS accretive
3,536 1,226
352 377 501
1,247
2,284
284
Sources 31 December 2006
Sources 30 June 2013 (pro-forma SCF re-financing)
Senior Credit Facility (incl. undrawn) Securitisation/Other PIK Notes
Bonds Subordinated Bonds
Progress since IPO | A business re-positioned
Net debt reduced by 600m+ from peak
Leverage multiple from peak of 4.1x to 2.7x
High Yield to Corporate Credit
Net Debt to EBITDA < 3x through cycle
*2012 net debt to EBITDA of 2.6x when proforma for full year EBITDA of SKOC
Net Debt and Net Debt to EBITDA 2007 to 2012
3,404
3,185
3,052 3,110
2,752 2,792
3.2x 3.4x 4.1x 3.4x 2.7x 2.7x
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12*
Strong operational performance underlying the business
European Packaging Operations
Market leading presence and commitment to innovation driving performance
European Paper System
Integrated model and efficient system sustaining higher quality earnings
The Americas
Growing exposure to the higher growth markets of the Americas
Sustainability
An important opportunity to provide a differentiated offering to our Customers
Delivering consistently higher quality earnings
EBITDA Margin
5%
7%
9%
11%
13%
15%
17%
19%
21%
SKG SCA Packaging** Mondi Packaging DS Smith UPM Stora Packaging
Source: Smurfit Kappa Note - Mondi to Dec13 | UPM to Mar13 | DS Smith to Apr13 | SKG and Stora Enso to Jun13 **SCA Packaging was acquired by DS Smith in 2012
Return on capital employed target increased to >13%
The Group has targeted return on capital employed of >13% through the cycle by 2015
This is a function of:
The continuing strong performance of the underlying operations with;
The strategic allocation of capital minimising costs and targeting growth
Reflects SKGs commitment to balanced investment focused on generating higher returns over the longer term
11.3%
10.3%
6.6%
9.9%
12.5% 12.6%
12.0%
13.0%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
ROCE progression since 2007
Strong free cash flow to drive accelerating EPS growth
221239
289
371
477
453 454
338
275
243225
259245 235
210
0
100
200
300
400
500
600
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f
-100
-50
0
50
100
150
200
250
300
350
400
450
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
SKG Free Cash Flow generation (m) SKG FCF w/o exceptional items (m)
Decreasing net interest flowing through to EPS growth
Free Cash Flow generation to drive EPS growth
Capital allocation
100% of Capex to depreciation
Committed to progressive dividends
Balanced approach between further debt reduction and accretive M&A
The focus is on maximising returns
M&A
Capital expenditure
Dividends
Debt reduction
Capital Allocation
Capital allocation | Capital expenditure
Proven track record of balanced approach to capital expenditure
Capex to depreciation at 100%
Focus on growth investments
Minimum required returns of 15 20%
200
220
240
260
280
300
320
340
360
380
2007 2008 2009 2010 2011 2012 2013E
Depreciation Capital Expenditure
90%
100%
82%
89%
63%
98%
75%
Source: Smurfit Kappa
Capex to depreciation 07 13
m
Capital allocation | Dividend policy
Certainty of value
Progressive dividend stream
Earnings growth to drive dividend growth
Capital allocation | Debt reduction
Net debt reduced by 600m since 2007
Net debt to EBITDA of 2.7x at Jun13
Net debt to EBITDA < 3x through cycle
Ratings target of BB+
Debt Maturity Profile (pro-forma SCF re-financing)
million
Source: Smurfit Kappa
Net Debt Paydown (m)
3,404m BB-
2,921m BB- 2,817m
BB (positive outlook)
Dec-07 Dec-10 Jun-13 Dec-15
Source: Smurfit Kappa and Standard & Poors
Target of BB+
Capital allocation | M&A
Rationale Earnings growth
M&A Criteria
Focus Operational enhancement
Financial Capacity 300 million per annum
Required Return IRR of 15% - 25%
SKG | Positioned to deliver performance and growth
SKG has fundamentally improved its positioning over the last 12 months
Acquisition of SK Orange County for US$340 million in November 2012
Complete exit of private equity ownership in January 2013
Bond issues of approximately 1.1 billion at improved rates of 4.125% to 5.125%
Transfer to unsecured capital structure through re-financing of our 1.375 billion SCF*
Operations have benefitted from Capex of 1.9bn and Cost Take-out of 542m since 2007
The integrated model consistently sustains above packaging sector average margins
Strong Free Cash Flow generation will drive value through returns focused allocation of capital
* (SCF - Senior Credit Facility)
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